Universal Transport Enterprises (UTE)operates an Integrated Transportation Network That Includes

Essay

Universal Transport Enterprises (UTE)operates an integrated transportation network that includes both air operations and road operations. UTE has 2 support departments (Administration and Information Systems)and 2 operating departments (Air and Road). The budgeted level of services at the start of the year was:
Percent of Support Services Used by
Admin- Information
istration Systems Air Road
Services Provided By:
Administration ----- 0.10 0.30 0.60
Information Systems 0.20 ---- 0.50 0.30
Costs for administration were $135,000, and costs for the information systems department were $75,000.
UTE monitors the cost per kilometre in the air for the air department and the cost per kilometre on the road for the Road Department. These cost figures include costs allocated from the support departments to the transportation departments. During the year, the actual transportation kilometres were
Air operations 800,000 kilometres
Road operations 1,500,000 kilometres
a)Allocate the support department costs to the two transportation departments using the direct method.
b)Using the reciprocal approach, the following amounts were derived using simultaneous equations (Admin=Administration; IS=Information Systems):
Admin = $135,000 + 0.2IS = $153,061
IS = $75,000 + 0.10Admin = $90,306
Create a schedule and allocate these amounts among the departments.
c)Suppose you have been asked to help UTE decide on a method for allocating support department costs. List one pro and one con for the direct and reciprocal methods, and then make a recommendation for this company.